The impact of the durability of a cartridge in the profit of MPS contracts

Long term, the purpose of any business is to maximize profit. MPS is not an exception. Controlling the profitability of each MPS contract is not only recommended: it is indeed a very healthy exercise for your company. So what happens when you find out that the expected durability of the cartridge you ship to your customers is not being reached? In other words, for every page your customers print you lose money.

This situation happens more frequently than what people think. Let’s see the reasons behind and the actions that the MPS service provider can take.

Theoretical vs actual durability.

There are two types of durability: the theoretical durability, also called expected durability, and the actual durability.

The expected durability is determined at an early stage during the proposal phase, but it is only fixed upon the contract signature. The theoretical durability is the first risk that is assumed and taken by the MPS provider. It is also the only risk that he cannot control by himself, but for which he is the one assuming it all.

The yield published by the cartridge manufacturer is the starting point for the calculation of the theoretical durability. Though in most cases the contract validates this yield (97% of signed contracts take the published manufacturer yield as the expected yield for the contract), in some cases, during contract negotiations, the durability is modified in order to address the printing specificity of the customer. In these cases, the customer negotiates a better cost per page with the argument that his average printing document uses less coverage than normal.

Once the contract starts, we start talking about actual durability. This is the average durability of the cartridge in the end customer’s printers. The actual durability is the empiric observation of the average number of pages per cartridge that a printer has been able to print during a specified period of time. Please note how simple this concept is, which is in contrast with the complexity to calculate it in real life.

But the actual durability does not mean anything per se. It needs to be compared with the expected durability. Should the actual durability be higher than theoretical, then the MPS service provider is making an extra margin (operational margin). Should it be lower, then the MPS service provider is losing margin and action is required.

Example:

During the period from June 1st till September 30th a printer has printed 23,465 pages and it has used 1.53 cartridges. The actual yield of the cartridge for this printer during the period has then be 15,337pages/cartridge.

As mentioned, the actual yield is just one more piece of data, and it is meaningless unless we compare it. Let’s suppose that the theoretical durability of the cartridge in this contract is 20,000 pages. The lower actual durability implies that the MPS provider is losing margin (or even having a net loss) on each page that his customer prints.

In our example, the dealer has a loss of profit equal to 23.32% of the revenue. Should the dealer have priced the contract with a margin of 30%, his actual margin would decrease to just 6.7%!

Contract vs printer level analysis.

A contract is the sum of all printers managed for this customer. A loss generated by an individual printer in a contract is in most cases compensated by extra profit obtained in other printers of the same contract. The overall result is what matters. If the average durability of the cartridges utilized in a Contract during a specific period of time is overall lower than the expected durability, the MPS provider is then losing money in this contract. If he doesn’t react, he will find himself after 5 years with significant dollars lost with this customer.

Why can the expected durability be higher than actual durability?

There are reasons why a cartridge’s durability is less than its expected yield. One of them is that the cartridge does not really last as long as expected.

Opposite to what many people think, this happens with great frequency. Most of the toner manufacturers and high quality remanufacturers perform tests in their labs to determine the yield of their cartridges. But in a real environment it may differ quite significantly. This is why some complement the lab results with quality controls in a real world production environment using the information that Nubeprint yield management tool provides.

The profitability analysis.

No matter if this is an OEM cartridge or a remanufactured cartridge. The fact is that the durability directly impacts the profit of an MPS contract. The control of the actual durability is therefore part of the profitability analysis of a contract. It is performed for the first time at an early stage in the life of the MPS contract. But the profitability can change over time. The customer may change its printing habits with new documents that have a higher coverage. The manufacturer may also change the specificities of his cartridges without even perceiving the impact during his tests in labs. For these reasons, the MPS provider must regularly do a follow-up and control any new deviation.

Solving a low durability issue.

When the cartridges do not print as many pages as they are expected to, the dealer has to come back to his cartridge supplier and re-open the negotiation. Of course, proving that the actual yield is lower than the published yield is complex unless the dealer has Nubeprint system managing his printers. This is one of the most complex though useful functionalities, and guaranties the permanent control of the profitability of each contract. The negotiation with the supplier is tough, and the success is not guaranteed. For this reason, it is always recommended that the MPS provider has alternatives for the supplies. Using printer models for which there are multiple alternatives in the market (manufacturer and re-manufactured products) is a sane business strategy.

MPS is about managing risks. A good starting point is accepting the fact that the most important risk one must manage in a multiyear contract is the supplies. So, controlling that the toners, drums and other supplies are performing as expected is a fundamental necessity for an MPS provider.